SECURITIES AND EXCHANGE COMMISSION
                             Washington, D.C. 20549

                                   FORM 10-Q

(Mark One)

[X]  Quarterly report pursuant to Section 13 or 15(d) of the Securities Exchange
     Act of 1934 for the quarterly period ended September 30, 1998 or

[ ]  Transition  report  pursuant  to Section  13 or 15(d) of the  Securities
     Exchange Act of 1934 for the transition period from _____ to _____.

                       Commission File Number: 333-22359

                              BIONX IMPLANTS, INC.
             (Exact name of registrant as specified in its charter)

          Delaware                                         22-3458598
(State or other jurisdiction of                    (I.R.S. Employer
 incorporation or organization)                    Identification No.)


                            1777 Sentry Parkway West
                            Gwynedd Hall, Suite 400
                         Blue Bell, Pennsylvania 19422
          (Address of principal executive office, including zip code)

                                  215-643-5000
              (Registrant's telephone number, including area code)
________________________________________________________________________________
     (Former name, former address and former fiscal year, if changed since
                                  last report)

Indicate by check mark whether the registrant (1) has filed all reports required
to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during
the  preceding 12 months (or for such  shorter  period that the  registrant  was
required  to file  such  reports)  and  (2)  has  been  subject  to such  filing
requirements for the past 90 days.

               Yes  X                               No___

Indicate the number of shares  outstanding  of each of the  issuer's  classes of
common stock, as of the latest practicable date.

At November 3, 1998,  there were  8,922,076  shares of Common  Stock,  par value
$.0019 per share, outstanding.

<PAGE>


                     BIONX IMPLANTS, INC. AND SUBSIDIARIES

                                     INDEX




                                                                         Page

Part I. Financial Information

Item 1. Consolidated Financial Statements

         Consolidated Balance Sheets at December 31, 1997
                  and September 30, 1998 (Unaudited)                       3

         Consolidated Statements of Operations for the Three and Nine
                  Months Ended September 30, 1997 and 1998 (Unaudited)     4

         Consolidated Statements of Cash Flows for the Nine Months
                  Ended September 30, 1997 and 1998 (Unaudited)            5

         Notes to Consolidated Financial Statements (Unaudited)            6

Item 2. Management's Discussion and Analysis of Financial                 10
         Condition and Results of Operations


Part II. Other Information

Item 2.  Changes in Securities and Use of Proceeds                        15

Item 6. Exhibits and Reports on Form 8-K                                  15

Signatures                                                                16

<PAGE>


Item 1. Financial Statements

                     BIONX IMPLANTS, INC. AND SUBSIDIARIES
                          CONSOLIDATED BALANCE SHEETS
                    December 31, 1997 and September 30, 1998
                      (in thousands, except share amounts)

                                               December 31,        September 30,
                                                  1997                  1998
                                                                    (Unaudited)


Assets:

Current assets:   

  Cash and cash equivalents                    $ 22,632                 17,069 
  Inventory, net                                  2,550                  6,339 
  Trade accounts receivable, net of
      allowance of $111 and $150 
      as of December 31, 1997 and 
      September 30, 1998                          3,070                  3,937 
  Grants receivable                                 129                    103 
  Prepaid expenses and other current assets         158                    529
  Deferred tax assets                               355                    607
Total current assets                             28,894                 28,584
Investments                                          87                     87
Plant and equipment, net                            849                  2,218
Goodwill and intangibles, net                     3,711                  3,644
                                                -------                 -------
       Total assets                            $ 33,541                 34,533
                                                =======                 ======

Liabilities and Stockholders' Equity
Current Liabilities:    
     Trade accounts payable                    $  1,775                  2,233
     Long-term debt, current portion                 43                     43
     Related party                                   74                     -
     Current income tax liability                   994                    517
     Accrued and other current liabilities        1,459                  1,359
                                                  -----                  -----
Total current liabilities                         4,345                  4,152

Long-term debt                                      115                     83

Stockholders' equity:   
  Preferred stock, par value 
  $0.001 per share 8,000,000
  authorized and none issued                          -                      - 
Common stock, par value, $0.0019 per 
  share, 31,600,000 shares authorized,
  8,916,812 and 8,922,076 shares 
  issued and outstanding as of
  December 31, 1997 and September 30, 1998, 
  respectively                                       17                     17
Additional paid-in capital                       35,616                 35,642
Accumulated deficit                              (5,527)                (4,336)
Foreign currency translation adjustment          (1,025)                (1,025)
                                                 ------                 ------
Total stockholders' equity                       29,081                 30,298
Total liabilities and stockholders' equity     $ 33,541                 34,533
                                                =======                 ======


   See accompanying notes to the unaudited Consolidated Financial Statements.



<PAGE>
<TABLE>
<CAPTION>

                     BIONX IMPLANTS, INC. AND SUBSIDIARIES
                     CONSOLIDATED STATEMENTS OF OPERATIONS
                     (in thousands, except per share data)
                                  (Unaudited)

                                           Three Months Ended    Nine Months Ended
                                             September 30,         September 30,
                                            1997         1998         1997          1998

Revenues:
<S>                                       <C>            <C>       <C>            <C>   
Product Sales                             $  4,149       5,265     $  11,188      14,781
Grant revenues                                  15         128           123         290
                                             -----       -----        ------      ------
Total revenues                               4,164       5,393        11,311      15,071

Cost of goods sold                           1,018       1,157         2,762       3,200
                                             -----       -----        ------      ------
Gross profit                                 3,146       4,236         8,549      11,871
Selling, general and
administrative                               2,538       3,274         6,811       9,416
Research and development                       250         533           651       1,464
                                             -----       -----         -----       -----

Total operating expenses                     2,788       3,807         7,462      10,880
                                             -----       -----         -----      ------
Operating income                               358         429         1,087        9,91
Other income and expense                       284         161           459         729
                                             -----       -----         -----      ------
Income before provision for
   income taxes                                642         590         1,546       1,720
Provision for income taxes                     158         171           387         529
                                            ------        ----         -----       -----
Net income                                 $   484         419      $  1,159       1,191
                                            ======         ===         =====       =====
Pro forma earnings per share: 
    Basic                                  $  0.05        0.05          0.13        0.13
    Diluted                                $  0.05        0.05          0.12        0.13
Shares used in computing pro forma 
  earnings per share: 
     Basic                                   8,916       8,922         8,916       8,921
     Diluted                                 9,328       9,227         9,328       9,261
</TABLE>

   See accompanying notes to the unaudited Consolidated Financial Statements.

<PAGE>


                     BIONX IMPLANTS, INC. AND SUBSIDIARIES
                     CONSOLIDATED STATEMENTS OF CASH FLOWS
                                  (Unaudited)
                                 (in thousands)
     
                                                        Nine Months Ended
                                                          September 30,

                                                        1997       1998

Cash flows from operating activities:
Net income                                         $   1,159       1,191
Adjustments to reconcile net income
    to net cash (used in) provided 
    by operating activities:
Depreciation and amortization                           367         427
Change in assets and liabilities:
Increase in inventory, net                             (524)     (3,789)
Increase in trade accounts receivable, net             (936)       (867)
Decrease in grants receivable                             6          26
Decrease in deferred offering costs                     195          -
Increase in prepaid expense and other current
assets                                                  (43)       (371)
Increase in deferred tax assets                           -        (252)
Increase in trade accounts payable                      384         458
Decrease in related party                               (85)        (74)
Increase (decrease) in current income tax 
liability                                               136        (477)
Decrease in accrued and other 
     current liabilities                               (150)       (100)
                                                       -----       -----
                                                       (650)      (5,019)
                                                       -----      -------

Net cash (used in) provided by operating activities     509       (3,828)
Cash flows from investing activities
      Purchase of plant and equipment                  (536)      (1,625)
                                                       -----      -------
Cash flows from financing activities: 
   Proceeds from initial public offering             24,150           -   
   Capitalization of patents                            -           (104)
   Exercise of warrants                                 552           -  
   Offering costs from initial public offering       (3,050)          - 
   Repayment of long-term debt                         (600)         (32)
   Proceeds from exercise of employee 
     stock options                                        3           26  
Net cash provided by (used in) financing 
    activities                                       21,055         (110)
Net effects of foreign exchange rate differences       (158)          -
Net increase (decrease) in cash and 
     cash equivalents                                20,870       (5,563)
Cash and cash equivalents at 
beginning of period                                   1,593       22,632
                                                     ------       ------
Cash and cash equivalents at end of period       $   22,463       17,069
                                                  =========       ======
Supplementary cashflow information:
Cash paid for interest                                   28            1
Cash paid for taxes                                     251        1,154
Conversion of series A preferred 
     shares to common shares
     upon consummation of the 
     initial public offering                         5,000            -

   See accompanying notes to the unaudited Consolidated Financial Statements.


<PAGE>

                     BIONX IMPLANTS, INC., AND SUBSIDIARIES

                   NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
                                  (Unaudited)

1.   Basis of Presentation

     The accompanying financial statements have been prepared by Bionx Implants,
Inc.  (the  "Company")  and  are  unaudited.  In the  opinion  of the  Company's
management,  all adjustments (consisting solely of normal recurring adjustments)
necessary to present fairly the Company's  consolidated financial position as of
December 31, 1997 and September 30, 1998, and the Company's consolidated results
of  operations  and cash flows for the nine months ended  September 30, 1997 and
1998,  have been made.  Certain  information and footnote  disclosures  required
under generally  accepted  accounting  principles have been condensed or omitted
from the consolidated  financial  statements and notes thereto  presented herein
pursuant to the rules and regulations of the Securities and Exchange Commission.
The consolidated  financial statements and notes thereto presented herein should
be read  in  conjunction  with  the  Company's  audited  consolidated  financial
statements  for the year ended  December 31, 1997 and notes thereto  included in
the  Company's  Annual  Report  on Form  10-K  (No.  33-22359)  filed  with  the
Securities and Exchange Commission. The results of operations and the cash flows
for the three and nine  months  ended  September  30,  1998 are not  necessarily
indicative  of the results to be expected  for any other  interim  period or the
entire fiscal year.

2.   Inventory

     Inventory consists of the following components (000's):

                                             December 31,          September 30,
                                               1997                     1998 

  Raw materials                             $   437                      599
  Finished goods                              2,778                    6,640
                                              -----                    -----
                                              3,215                    7,239

     Less reserves                             (665)                    (900)
                                              -----                    ------
                                            $ 2,550                    6,339
                                            =======                    =====

3. Initial Public Offering; Pro Forma Net Income Per Share

     During the second  quarter of 1997,  the  Company  consummated  its initial
public  offering of Common  Stock (the "IPO").  A total of  2,300,000  shares of
Common Stock (including 300,000 shares issued upon exercise of the Underwriters'
over - allotment option) were issued pursuant to the IPO. In connection with the
IPO, all of the Company's  outstanding  shares of Series A Preferred  Stock were
automatically  converted into a total of 1,052,638 shares of Common Stock and an
additional  245,065  shares of Common Stock were issued upon the exercise of all
outstanding  warrants.  Net  proceeds  from the IPO and the exercise of warrants
were $21.7 million.

     Effective  December  31,  1997,  the  Company  adopted  the  provisions  of
Statement of Financial Accounting  Standards No. 128 ("SFAS 128"),  Earnings per
Share (EPS).  SFAS 128  establishes  and  simplifies  the standards of computing
earnings per share previously  found in Accounting  Principles Board Opinion No.
15,  Earnings  per  Share,  and  makes  them  comparable  to  international  EPS
standards.  Under  SFAS 128,  basic  earnings  per share is  computed  using the
weighted average number of shares of common stock outstanding during the period.
Diluted  earnings  per share is computed  using the weighted  average  number of
common and  dilutive  potential  common  shares  outstanding  during the period.
Potential common shares consist of stock options and warrants using the treasury
stock method and are excluded if their effect is antidilutive.

<PAGE>

     Pursuant to  Securities  and  Exchange  Commission  (SEC) Staff  Accounting
Bulletin  No. 98 and SEC staff  policy,  all  common  shares  issued  during the
periods  prior to the Company's  IPO for nominal  consideration  are presumed to
have  been  issued in  contemplation  of the IPO and are to be  included  in the
calculation  of basic  earnings  per share as if they were  outstanding  for all
periods presented.  Similarly,  common shares and potential common shares issued
during the period  prior to the IPO for nominal  consideration  are  presumed to
have  been  issued in  contemplation  of the IPO and are to be  included  in the
calculation  of diluted  earnings per share,  even though  anti-dilutive,  as if
outstanding  for all periods  presented.  The Company had no common or potential
common shares issued for nominal  consideration  during the periods prior to the
IPO.

     The  calculation  of shares used in  computing  pro forma basic and diluted
earnings  per  share  also   includes  the  Company's   mandatorily   redeemable
convertible  preferred  stock and related  warrants,  assuming  conversion  into
shares of common stock (using the if-converted method) from the original date of
issuance in 1996.  The  calculation  also assumes that the shares  issued in the
Company's IPO were outstanding as of January 1, 1997.

     The  following  table sets  forth the  calculation  of the total  number of
shares used in the  computation  of pro forma  earnings per common share for the
three months ended September 30, 1997 and 1998 (in thousands):

                                                      1997                1998

Weighted average common shares outstanding           7,618                 8,922
Assumed conversion of Series A Mandatorily
     Redeemable Convertible Preferred Stock
     and related warrants using the 
     if-converted method                             1,298                 -

Shares used in computing pro forma basic
earnings per share                                   8,916                 8,922
Incremental shares from assumed exercise of  
      dilutive options and warrants                    412                   305

Shares used in computing pro forma diluted 
      earnings per share                             9,328                 9,227
                                                     =====                 =====
<PAGE>


The  following  table sets forth the  calculation  of the total number of shares
used in the  computation  of pro forma  earnings  per common  share for the nine
months ended September 30, 1997 and 1998 (in thousands):

                                                       1997                1998

Weighted average common shares outstanding
                                                       7,618               8,922
Assumed conversion of Series A Mandatorily 
   Redeemable Convertible Preferred Stock
   and related warrants using the 
   if-converted method                                 1,298                 -
Shares used in computing pro forma basic
  earnings per share                                   8,916               8,922
Incremental shares from assumed exercise of  
  dilutive options and warrants                          412                 340
Shares used in computing pro forma diluted
   earnings per share                                  9,328               9,261


4.   Foreign Currency Translation

     Through  December 31,  1997,  the  financial  statements  of the  Company's
foreign  subsidiaries  were  translated  into U.S.  dollars in  accordance  with
Statement of Financial Accounting Standards No. 52, Foreign Currency Translation
(SFAS 52). Substantially all assets and liabilities of the foreign subsidiaries,
all of which are located in Finland,  were translated at year-end exchange rates
and income and expense items were translated at an average exchange rate for the
year. Adjustments resulting from the translation of financial statements through
December 31, 1997 are  reflected as a component of  stockholders'  equity in the
accompanying balance sheets.

     Effective January 1, 1998, the functional currency of the Company's foreign
subsidiaries was changed from the Finnish Marrka to the U.S. dollar.  The change
in functional  currency was based on changes in certain salient economic factors
of the foreign  subsidiaries  including cash flows, sales prices of the products
being  manufactured,  the sales  markets for the  products  being  manufactured,
expenses being incurred,  sources of financing,  and intercompany  transactions.
The change in these economic factors is primarily due to the increased  reliance
of the foreign  subsidiaries on the U.S. marketplace for sales of products being
manufactured.

     In accordance with SFAS 52, the cumulative  translation  adjustment through
December 31, 1997 has been frozen,  and remains as a component of  stockholders'
equity.


5.   Reporting Comprehensive Income

     As  of  January  1,  1998,  the  Company  adopted  Statement  of  Financial
Accounting Standards No. 130 (SFAS 130), "Reporting  Comprehensive Income." SFAS
130 establishes new rules for the reporting and display of comprehensive  income
and its components.  The adoption of SFAS 130 had no impact on the Company's net
income or stockholders' equity. SFAS 130 requires the Company's foreign currency
translation  adjustments,  which prior to adoption were  reported  separately in
stockholders' equity, to be included in other comprehensive income.

Following are the components of comprehensive income for the three month periods
ended September 30, 1997 and 1998 (in thousands):
                                                 
                                                             September 30,      
                                                      1997               1998

Net income                                           $ 484                419

Foreign currency translation adjustments               (42)                -
                                                      ----                ----
Comprehensive income                                 $ 442                419
                                                      ====                ====

Following are the components of comprehensive income for the nine month periods 
ended September 30, 1997 and 1998 (in thousands):

                                                        September 30, 
                                                      1997        1998

Net income                                         $ 1,159        1,191
Foreign currency translation adjustments              (158)          -
                                                    ------        -----
Comprehensive income                               $ 1,001        1,191
                                                    ======        =====
<PAGE>

                      MANAGEMENT'S DISCUSSION AND ANALYSIS
                OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS

Business

     Statements  regarding  future  performance in this Quarterly Report on Form
10-Q  constitute   forward-looking   statements  under  the  Private  Securities
Litigation  Reform  Act of 1995.  The  Company's  actual  results  could  differ
materially from those anticipated by such forward-looking statements as a result
of certain  factors,  including those set forth in Exhibit 99.1 to the Company's
Annual Report on Form 10-K for the year ended December 31, 1997.

     The  Company  was  founded in 1984 to develop  certain  resorbable  polymer
implants for orthopaedic  uses. The Company had incurred  substantial  operating
losses from its inception through December 31, 1996, with an accumulated deficit
of  approximately  $7.7 million as of December 31,  1996.  Such losses  resulted
principally  from  expenses  associated  with  the  development,  patenting  and
clinical testing of the Company's  Self-Reinforcing  technologies and resorbable
implant  designs,   preparation  of  submissions  to  the  U.S.  Food  and  Drug
Administration (the "FDA") and foreign regulatory  agencies,  the development of
sales, marketing and distribution channels, the write-off of acquired in-process
research and development, and the development of its manufacturing capabilities.
As of  September  30,  1998,  the  accumulated  deficit has been reduced to $4.3
million.  Although the Company's  revenues have grown  significantly  in certain
recent periods,  no assurance can be given that this trend will continue or that
revenues of any mag nitude  will exceed  expenses  incurred in  anticipation  of
future growth.  Accordingly,  the Company may incur significant operating losses
in the future as it  continues  its  product  development  efforts,  expands its
marketing,  sales and  distribution  activities and scales up its  manufacturing
capabilities.  There  can be no  assurance  that  the  Company  will  be able to
continue  to   successfully   commercialize   its  products  or  that  continued
profitability will be achieved.

     The Company first introduced its polyglycolic  acid ("PGA") polymer pins in
1984 and its PGA  screws in 1986.  In 1987,  the  Company  introduced  its first
poly-l-lactic  acid  ("PLLA")  polymer  products,  PLLA pins.  PLLA  screws were
introduced in 1989.  Since the  introduction of these products,  the Company has
expanded  its PGA and PLLA pin and screw  product  lines to  address  additional
clinical indications. The Company's PGA membrane product was introduced in 1992,
and, in 1995, the Company  launched its Meniscus Arrow,  PLLA tacks, and PGA and
PLLA urology stents.  During the first nine months of 1998, the Company received
approval to market four  additional  products;  a tack for  shoulder  repair,  a
cannulated  screw for wrist  fractures,  a screw for  cosmetic  surgery,  and an
anchor for shoulder repair. Prior to 1996, the Company derived substantially all
of its  revenue  from sales of its PLLA and PGA screws and pins.  A  substantial
portion of the Company's  revenues in more recent periods has resulted from U.S.
sales of the Me niscus  Arrow,  which  received FDA  clearance in March 1996. To
date, all products sold by the Company have been launched first in international
markets. During the three months ended September 30, 1998, international product
sales  represented 22% of the Company's total product sales compared with 16% in
the third quarter of 1997.

     Historically,  the Company  typically sold implant grade,  stainless  steel
surgical  instruments  for  use  with  each of its  Self-Reinforced,  resorbable
products.  The margins for these  instruments  were and are typically lower than
the  margins  applicable  to the  Company's  implant  products.  However,  since
orthopaedic  companies  operating in the U.S. have  traditionally  loaned rather
than sold  instruments  to their  customers,  it has  become  necessary  for the
Company to provide an increasing proportion of its instrumentation  inventory in
the U.S.  on a loan basis.  Similar  practices  are not common in  international
markets.   For  financial  statement   purposes,   revenues  from  the  sale  of
instrumentation  systems are included within product sales and costs  associated
with the Company's procurement of such systems are included within cost of goods
sold. The Company's instrumentation systems are reusable.  Accordingly, sales of
such systems are likely to be most  pronounced in periods  shortly after product
launches and likely to be le ss prevalent as penetration of the market increases
over the long term. Loans of  instrumentation  are charged to cost of goods sold
over the life of the loaned  asset,  which is estimated to be between  three and
four years. The negative impact on the Company's gross profit margins associated
with sales and loans of a particular  instrument  system is expected to decrease
after a substantial market penetration has been achieved. Similarly, such impact
is likely to lessen to the  extent  that sales and loans of  instrument  systems
decrease as a percentage of total product  sales.  However,  no assurance can be
given as to the extent to which instrumentation sales will depress the Company's
gross profit margins in the future.

     The Company  sells its products  through  managed  networks of  independent
sales agents,  distributors  and dealers.  In the U.S., the Company  handles all
shipping and  invoicing  functions  directly and pays  commissions  to its sales
agents.   Outside  the  U.S.,  the  Company  sells  its  products   directly  to
distributors  and  dealers  at  discounts  that vary by  product  and by market.
Accordingly,  the  Company's  U.S.  sales  result in higher  gross  margins than
international sales. The Company anticipates that during the next few years, the
relative  percentage of its U.S.  product sales to total product sales is likely
to  continue  to  increase.  Since the Company  pays  commissions  on sales made
through its U.S.  network,  an increased  percentage of U.S. sales in the future
will  likely  result in an increase in the  percentage  of selling,  general and
administrative  expenses to total sales.  This increase will be partially offset
by the higher gross margins received on products sold in the U.S.

     The Company has entered  into  agreements  pursuant to which the Company is
obligated  to pay  royalties  based on net  sales of  certain  of the  Company's
products, including the Meniscus Arrow. To the extent that sales of the Meniscus
Arrow  products and other  licensed  products  increase in future  periods,  the
Company's royalty obligations are expected to increase.

     The  Company  currently  manufactures  its implant  products  solely at its
Tampere,  Finland  plant.  The  Company  intends to  establish  a  manufacturing
capability in the U.S. The Company plans to establish this capability  either by
equipping and operating a leased  facility or contracting  with a third party to
provide a manufacturing  capability to the Company. The Company believes that on
an interim basis, contract  manufacturing may enable the Company to save certain
staffing  costs and enable  senior  management  to focus on other aspects of its
business. However, if the Company arranges for a third party to provide contract
manufacturing  in the U.S.,  fees  payable to such  manufacturer  may exceed any
savings in  staffing  costs and  result in higher  costs of goods sold and lower
gross profit.  Ultimately,  in operating a U.S. facility, the Company will incur
certain  duplicative  manufacturing  costs which could result in higher costs of
goods sold and lower gross profit margins.

     While the Company's  operating  losses have resulted in net operating  loss
carryforwards of approximately  $900,000 for income tax reporting purposes,  the
extent to which such  carryforwards  are available to offset future U.S. taxable
income is significantly  limited as a result of various  ownership  changes that
have  occurred in recent  years.  Additionally,  because U.S. tax laws limit the
time during which these  carryforwards  may be applied against future taxes, the
Company may not be able to take full  advantage  of the U.S.  carryforwards  for
federal income tax purposes.  Furthermore, income earned by a foreign subsidiary
may not be offset against  operating losses of Bionx Implants,  Inc. or its U.S.
subsidiaries.  As a result, the Company may incur tax obligations during periods
when it reflects a  consolidated  net  operating  loss.  The statutory tax rates
applicable  to the  Company  and its foreign  subsidiaries  vary  substantially,
presently  ranging  from  approximately  40% in the U.S. to 28% in Finland.  Tax
rates have fluctuated in the past and may do so in the future.

     The  Company's  results of  operations  have  fluctuated  in the past on an
annual and quarterly basis and may fluctuate significantly from period to period
in the future,  depending on several  factors,  many of which are outside of the
Company's control. Such factors include the timing of government approvals,  the
medical  community's  acceptance  of the  Company's  products,  the  success  of
competitive  products,  the  ability  of the  Company  to enter  into  strategic
alliances with corporate partners,  expenses associated with patent matters, the
results of regulatory  inspections and the timing of expenses related to product
launches.


Results of Operations

     Product  sales.  The  Company's  product  sales  increased by 27% from $4.1
million  during the quarter ended  September 30, 1997 to $5.3 million during the
quarter ended September 30, 1998, and by 32% from $11.2 million during the first
nine  months of 1997 to $14.8  million  during  the first  nine  months of 1998.
Product  sales are  comprised of three  specific  product  categories;  Meniscus
Arrows,  Other Implants (screws,  pins, tacks, stents) and Instruments and other
product-related revenue.

     Meniscus Arrow revenues increased by 20% worldwide from $2.9 million during
the third quarter of 1997 to $3.5 million  during the third quarter of 1998, and
increased by 4% from the second  quarter 1998 level of $3.4  million.  Worldwide
revenues from Meniscus  Arrow sales for the first nine months of 1998 were $10.1
million,  a 29%  increase  over  revenues  for the  comparable  period  in 1997.
Meniscus Arrow  performance in the U.S.  continues to be impacted by competitive
pressures in the marketplace.  U.S. revenues from Meniscus Arrow sales increased
by 2% during the three months ended  September  30, 1998  compared to the second
quarter of 1998.

     Other implant revenues  increased by 82% worldwide from $731,000 during the
third quarter of 1997 to $1,336,000 during the third quarter of 1998, and by 64%
worldwide from $2.0 million during the first nine months of 1997 to $3.3 million
during the first nine months of 1998. The 1998 product sales  increases  reflect
increased  utilization of the Company's  managed  network of  independent  sales
agents in the U.S. and  increased  sales of the Company's  existing  products in
international markets.

     Instruments  and other  product-related  revenues  declined  from  $478,000
during the third quarter of 1997 to $385,000,  during the third quarter of 1998,
and remained  unchanged at $1.4 million during the first nine months of 1997 and
1998.

     Grant revenues.  Grant revenues totaled $128,000 for the three months ended
September 30, 1998, compared with $15,000 recorded during the three month period
ended September 30, 1997.  Grant revenues  increased from $123,000 for the first
nine months of 1997 to $290,000 for the comparable  period in 1998. This revenue
is  generated  from  grants   obtained  from  a  Finnish   government   research
organization, which funds certain research and development projects.

     Gross profit;  gross margin. The Company's gross profit increased from $3.1
million  during  the third  quarter  of 1997 to $4.2  million  during  the third
quarter of 1998,  and from $8.5 million  during the first nine months of 1997 to
$11.9  million  during  the first  nine  months of 1998.  The  increases  in the
Company's gross profit  primarily  resulted from the general increase in product
sales volume.  Overall,  the Company's  gross margin  (including  the effects of
grant revenue) increased from 76% during the third quarter of 1997 to 79% during
the third quarter of 1998, and from 76% to 79% during the comparable  nine month
periods. The increases in gross margin in 1998 are primarily attributable to the
leveraging of certain  fixed  manufacturing  costs over the  Company's  expanded
revenue base.

     Selling,  general  and  administrative   expenses.   Selling,  general  and
administrative  expenses  increased  by 29% from $2.5  million  during the third
quarter of 1997 to $3.3  million  during the third  quarter of 1998,  and by 38%
from $6.8 million  during the first nine months of 1997 to $9.4  million  during
the first nine months of 1998.  Such  expenses  were 61% of product sales during
the third  quarter of 1997,  63% of product  sales  during the third  quarter of
1998,  61% of product  sales  during the first nine  months of 1997,  and 64% of
product  sales  during  the first  nine  months of 1998.  Selling,  general  and
administrative  expenses  consist  primarily of distributor  commissions paid on
product sales in the U.S., patent and license related  expenses,  costs incurred
in connection with the regulatory  process,  expenses associated with supporting
the Company's  managed  networks of independent  sales agents,  distributors and
dealers and  amortization of goodwill and patents  associated with the Company's
September 1996 reorganization  (such amortization and depreciation  amounting to
approximately $65,000 per quarter and expected to be approximately  $255,000 per
year through 2017).  The increases in the dollar amount of selling,  general and
administrative  expenses were  primarily  attributable  to increased  commission
payment obligations reflecting the Company's increased product sales in the U.S.
and increased  expenses  associated with  establishing  and supporting a managed
network of  independent  sales agents in the U.S. The increase in the percentage
relationship  of such  expenses  to  product  sales for the nine  month  periods
described herein reflects certain general and  administrative  expenses incurred
in anticipation of new product launches.

     Research and development.  Research and development  expenses  increased by
113% from $250,000 during the third quarter of 1997 to $533,000 during the third
quarter of 1998, and by 125% from $651,000  during the first nine months of 1997
to $1.5 million during the comparable period in 1998. These increases  reflected
an increased  volume of product  development work being performed by the Company
and increased staffing levels in this area.

     Other  income  and  expense.  In the third  quarter  of 1998,  the  Company
generated  interest income of $271,000,  compared to interest income of $284,000
in the comparable  period of 1997. For the nine month periods,  interest  income
increased  from  $459,000 to $819,000.  Funds  obtained from the proceeds of the
initial public  offering in late April 1997 generated the interest income in the
1997 and 1998 periods.  During the third quarter of 1998,  the Company  incurred
foreign  exchange  gains of $93,000,  compared  with a foreign  exchange gain of
$5,000 incurred during the third quarter of 1997.

     Income  taxes.  Due  primarily to the  utilization  of certain  Finnish net
operating loss carryforwards  during 1997, the effective tax rate increased from
25% during  the third  quarter  and first nine  months of 1997 to 29% during the
third quarter and 31% during the first nine months of 1998.

     Net income.  The Company  reported net income of $419,000 or $.05 per share
(basic and diluted) for the third  quarter of 1998,  as compared with net income
of $484,000 or $.05 per share (basic and diluted) for the  comparable  period in
1997. For the nine month periods,  diluted income per share  increased from $.12
per share in 1997 to $.13 per share in 1998.  No assurance can be given that the
Company will continue to be profitable during future periods.

     Per  Share  Calculations.   In  February  1997,  the  Financial  Accounting
Standards  Board issued  Statement of Financial  Accounting  Standards  No. 128,
Earnings per Share ("Statement No. 128"),  effective for fiscal years commencing
after December,  1997. This Statement  replaces the  presentation of primary EPS
with a presentation of basic EPS and requires the dual presentation of basic and
diluted EPS on the face of the income  statement  of all  entities  with complex
capital  structures.  Statement  128  also  requires  a  reconciliation  of  the
numerator  and  denominator  of the diluted EPS  computation.  See note 3 of the
Notes to the Consolidated Financial Statements.

Liquidity and Capital Resources

     In  September  1996,  the  Company  completed a private  placement  of $5.0
million in preferred  stock (all of which was  converted  into Common Stock upon
consummation  of the  Company's  initial  public  offering  in April  1997)  and
warrants (all of which were exercised  during April 1997). The net proceeds were
used to repay  bank debt,  to pay down trade  debt,  to fund  manufacturing  and
product development efforts and for other working capital purposes. During April
1997,  the Company  consummated  its initial public  offering.  In May 1997, the
Underwriters exercised in full their over-allotment option granted in connection
with the initial public offering.  Net proceeds from the initial public offering
(including  the  exercise  of the  over-allotment  option)  and the  exercise of
warrants  during April 1997 were $21.7  million.  In addition,  the Company made
arrangements for a $2 million credit line,  secured by the personal  property of
Bionx Implants, Inc. and its Biostent,  Inc. subsidiary.  Amounts to be advanced
thereunder  are subje ct to the lender's  discretion and are limited to specific
percentages of certain domestic  receivables and inventory.  To date, no amounts
have been borrowed pursuant to this facility.

     At December  31, 1997 and  September  30, 1998,  cash and cash  equivalents
totaled $22.6 million and $17.1 million,  respectively. The decrease in cash and
cash equivalents of approximately $5.6 million is attributable to investments of
$1.1 million in machinery and equipment in the Finnish  manufacturing  facility,
as well as a $ 3.8 million  increase in inventory  levels in anticipation of new
product launches.

     As of September 30, 1998, the Company had working capital of $24.4 million,
compared with $24.5 million as of December 31, 1997.  Long-term debt of $126,000
decreased  from the level at the  beginning of the year of  $158,000.  This debt
represents  loans  obtained from the Finnish  government,  and carries  interest
rates ranging from 1 - 3% per annum.

     The Company  believes  that  existing  capital  resources  from its initial
public  offering,  its  September  1996 private  placement  and its $2.0 million
credit line,  together  with cash flow from  operations  (if, and to the extent,
generated), will be sufficient to fund its operations through 2000. However, the
Company's  future capital  requirements and the adequacy of available funds will
depend on numerous  factors,  including  market  acceptance  of its existing and
future products,  the successful  commercialization  of products in development,
progress in its product  development  efforts,  the  magnitude and scope of such
efforts,   progress  with  preclinical  studies,  clinical  trials  and  product
clearances by the FDA and other agencies,  the cost and timing of its efforts to
expand  its  manufacturing  capabilities,   the  cost  of  filing,  prosecuting,
defending and enforcing  patent claims and other  intellectual  property rights,
competing  technological  and  market  developments,   and  the  development  of
strategic alliances for the marke ting of certain of its products. The Company's
operations  did not produce  positive cash flows during 1994,  1995 and 1996. To
the extent that funds generated from the Company's operations, together with its
existing  capital  resources  (including  such  credit  facility),  and  the net
interest earned thereon,  are insufficient to meet current or planned  operating
requirements,  the Company will be required to obtain  additional  funds through
equity or debt  financings,  strategic  alliances  with  corporate  partners and
others,  or through other  sources.  The terms of any equity  financings  may be
dilutive  to  stockholders  and the  terms of any debt  financings  may  contain
restrictive  covenants  which  limit the  Company's  ability  to pursue  certain
courses of action. The Company does not have any committed sources of additional
financing  beyond  that  described  above,  and there can be no  assurance  that
additional funding,  if necessary,  will be available on acceptable terms, if at
all. If adequate funds are not available, the Compan y may be required to delay,
scale-back or eliminate  certain  aspects of its operations or attempt to obtain
funds through  arrangements  with strategic  partners or others that may require
the  Company  to  relinquish  rights to  certain  of its  technologies,  product
candidates,  products or potential markets. If adequate funds are not available,
the Company's  business,  financial condition and results of operations could be
materially and adversely affected.

Year 2000 Compliance

Readiness

     The Company's  centralized  corporate  business and  technical  information
systems have been fully assessed as to year 2000  compliance and  functionality.
Presently,  these systems are nearly complete with respect to required  software
changes,  tests  and  migration  to  the  production  environment.  The  Company
anticipates that internal  business and technical  information  system year 2000
compliance  issues  will be  substantially  remedied  by the  end of the  second
quarter 1999. This expectation constitutes a Forward-Looking  Statement.

     The Company has  satisfactorily  completed the identification and review of
computer  hardware and software  suppliers  and is in the process of  verifying,
reviewing  and logging  year 2000  preparedness  of general  business  partners,
suppliers,  vendors, and/or service providers that the Company has identified as
critical.


Costs

     The Company is expected to incur costs of approximately  $250,000 in fiscal
1998 associated with the purchase of and modifications to the Company's existing
systems to make them Year 2000 ready. The Company expects to incur costs between
$100,000 and $200,000 in fiscal year 1999 for a total  project cost of less than
$500,000.  Most of these costs  relate to the  implementation  of a new internal
business system and will be depreciated  over its estimated life. Any other cost
relating  to this  undertaking  will  be  expensed  as  incurred.  Based  on the
estimates and information  currently available,  the Company does not anticipate
that the cost associated  with year 2000  compliance  issues will be material to
the Company's consolidated financial position or results of operations.

Risks and Contingency Plans

     Considering  the  substantial  progress made to date,  the Company does not
anticipate  delays in  finalizing  internal  year 2000  remediation  within  the
remaining  time  schedules.  There  can  be no  assurances,  however,  that  the
Company's internal systems or those of a third party on which the Company relies
will be year 2000 compliant by the year 2000. An  interruption  of the Company's
ability to conduct its business due to a year 2000 readiness  problem could have
a material adverse effect on the Company.

     Anticipated  completion of this review is estimated to be by the end of the
second quarter of 1999.  Pending the results of the Company's review of the year
2000 preparedness of its critical third parties, the Company will then determine
what course of action and contingencies will need to be made, if any.

Forward-Looking Statements

     This   discussion  of  the   Company's   Year  2000   Compliance   contains
Forward-Looking  Statements.  Actual results could differ  materially  from such
expectations as a result of a number of factors, including the responsiveness of
the Company's vendors and the existence of unanticipated technological problems.


Part II. Other Information

Item 2. Changes in Securities and Use of Proceeds

     The  Company's   initial  public  offering  was  effected   pursuant  to  a
registration  statement on Form S-1 (No.  333-22359)  declared  effective by the
Securities and Exchange  Commission  (the "SEC") on April 24, 1997. The offering
commenced on April 25, 1997 and terminated after all securities were sold.

     From April 25, 1997 through  September  30, 1998,  the Company has used the
following amount of such net proceeds for the following categories enumerated by
the SEC:

                                                     Reasonable Estimated Amount
Category                                               (in thousands)

Construction of plant, building and facilities               $   275
Purchase and installation of machinery and
  equipment                                                    1,800
Purchase of real estate                                           -
Acquisition of other businesses                                   -
Repayment of indebtedness                                        650
Working capital                                                1,700
Short term investments (Cash Equivalents)                     17,070
Other purposes for which at least $100,000 has been used         -


None of the  above-mentioned  uses of  proceeds  represented  direct or indirect
payments to directors or officers of the Company or their associates, to persons
owning ten percent or more of any class of equity  security of the Company or to
affiliates of the Company.  Such uses do not represent a material  change in the
use of proceeds described in the above-mentioned registration statement.


Item 6. Exhibits and Reports on Form 8-K

     (a) The following  exhibits are filed as part of this  Quarterly  Report on
Form 10-Q:

     No. 27.1 Financial Data Schedule

     (b) The  Registrant  did not file any Current Report on Form 8-K during the
quarter ended September 30, 1998.

                                   SIGNATURES

     Pursuant to the  requirements  of the Securities  Exchange Act of 1934, the
Registrant  has duly  caused  this  report  to be  signed  on its  behalf by the
undersigned thereunto duly authorized.

                                  BIONX IMPLANTS, INC.


                                  By: /s/David W. Anderson
                                         David W. Anderson,
                                      President and Chief Executive Officer



                                  By: /s/ Michael J.  O'Brien
                                      Michael J. O'Brien
                                      Vice President, Chief Financial Officer
                                         and Chief Accounting Officer


Dated: November 16, 1998

<PAGE>


                                 EXHIBIT INDEX


Exhibit No.

Exhibit No. 27.1 Financial Data Schedule